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Sledge v. Indico System Resources, Inc.

United States District Court, W.D. Tennessee, Western Division

December 18, 2014


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For Mary Phillipa Sledge, Mary Jane Pidgeon Sledge Trust, Pidgeon Sledge Family Limited Partnership, Plaintiffs: Anthony Charles Pietrangelo, John J. Cook, LEAD ATTORNEYS, Darrell Newman Phillips, PIETRANGELO COOK, Memphis, TN.

For Cleal Watts, III, Indico System Resources, Inc., Defendants: Bruce McMullen, LEAD ATTORNEY, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ, Memphis, TN; Lori Hackleman Patterson, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ-Memphis, Memphis, TN.

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Before the Court is the Motion to Dismiss for Lack of Jurisdiction under Federal Rule of Civil Procedure 12(b)(2) of Defendants Indico System Resources, Inc. and Cleal Watts, III (" Defendants" ), filed December 3, 2013. (ECF No. 11). Plaintiffs filed their Response in Opposition to the Motion (ECF No. 13) on December 30, 2013. Defendants filed a Reply on January 23, 2014 (ECF No. 17), to which the Plaintiffs filed a Sur-Reply on January 30, 2014. (ECF No. 21). On December 2, 2014, the parties appeared for an evidentiary hearing on the Motion. For the reasons stated below, the Defendants' Motion to Dismiss for Lack of Jurisdiction is DENIED.


I. Nature of the Claims

Plaintiffs Mary Phillipa Sledge, Mary Jane Pidgeon Sledge Trust, and Pidgeon Sledge Family Limited Partnership (" Plaintiffs" ) filed a Complaint against Defendants Indico System Resources, Inc. (" ISR" ) and Watts in his individual capacity and as an agent of ISR on July 29, 2013. (Pls.' Compl., ECF No. 1). Mr. Watts is the President of ISR, a company in the business of consigning unrefined, new gold ore, dust. ( See Defs.' Mem. in Supp. 1, ECF No. 11-1). The Plaintiffs allege violations of various state laws and federal securities laws by claiming that Defendants fraudulently solicited approximately $5 million from Plaintiffs to purchase gold dust mined in the Republic of Ghana. (Pls.' Compl. ¶ ¶ 1, 40-109). The Complaint alleges damages that satisfy the amount-in-controversy requirement under 28 U.S.C. § 1332.

The Plaintiffs' Complaint argues two separate theories in support of this Court's personal jurisdiction over the Defendants for the claims alleged. ( Id. ¶ ¶ 8-12). First, the Plaintiffs argue that the Court has personal jurisdiction over both Defendants because Watts, a resident of Texas, directed fraudulent communication and information into Tennessee on behalf of himself and ISR, purposely availing himself and ISR of the forum. Second, the Plaintiffs argue that the Court has jurisdiction over the Defendants under both the Securities Act of 1933 and the Securities and Exchange Act of 1934, both of which contain nationwide-service-of-process provisions establishing personal jurisdiction.

II. Contacts with Tennessee

In support of this Court's exercise of jurisdiction, the Plaintiffs have submitted numerous emails and testified to a myriad of calls between Watts and Sledge. These communications form the bases of the Plaintiffs' claims. The Defendant does not seriously dispute that Watts made calls or sent emails over his 18-month period of communication with Sledge. Instead, the

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Defendant argues that he did not know Sledge was in Tennessee when he made such communications, and, therefore, he could not have personally availed himself of the privilege of doing business or causing injury in Tennessee. Specifically, the Defendants point out that Sledge spent some time in Kentucky during the relevant period, had one cell phone with a Kentucky area code, and sometimes affixed the Kentucky phone number below her signature line in emails. In response, the Plaintiffs present evidence, described in more detail below, that Watts knew he was communicating with Sledge while she was in Tennessee. He knew not just of her interest in investing in gold, but also knew personally of her residence and personal business in Tennessee. Watts made numerous calls to her Tennessee home and cell numbers. Sledge's email address contains no geographical identifier, but her emails with Watts showed references to bank accounts in Tennessee and Tennessee phone numbers.[1] Furthermore, the Plaintiffs presented evidence that Watts talked with Sledge's accountants in Tennessee.

III. Nationwide Service of Process

As an initial matter, the Court will not address the Defendants' argument against the Court's exercise of personal jurisdiction with respect to the Plaintiffs' securities-law claims. Generally, a provision which allows for nationwide service of process confers jurisdiction upon a district court because " the strictures of International Shoe " do not apply.[2] The question of jurisdiction under these provisions is whether the defendant had minimum contacts with the United States, not the forum state.[3] The Defendants here have minimum contacts with the United States. But the Defendants also cite opinions of the Sixth Circuit holding that whether jurisdiction is properly conferred under nationwide-service-of-process provisions also depends upon whether a plaintiff has adequately stated a claim under the federal law.[4] More precisely, if a plaintiff has not stated a claim under a federal law which allows for nationwide service of process, he cannot claim that the district court has personal jurisdiction over a defendant as to those claims. But here, the Plaintiffs are not attempting to persuade the Court that it has personal jurisdiction under the nationwide-service-of-process provision and, thus, that such jurisdiction also applies over the Defendants generally, even for state-law fraud claims.[5] If that were the case, then an analysis of the Plaintiffs' failure to state the securities-law claims would be more appropriate in a 12(b)(2) motion like this one. Since the Court here determines that there is an independent basis for personal jurisdiction outside of the '33 and '34 Acts' nationwide-service-of-process provisions, a personal-jurisdiction challenge to the securities-law claims is not an efficient method. Instead, if the

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Defendants wish to challenge the bases of the Plaintiffs' securities-law claims, they may do so with full ...

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